Oil production costs low, Iran says

“The Saudi budget … reinforced the “lower for longer” sentiment in that market”, said analyst Augustin Eden at traders Accendo Markets, in reference to OPEC’s Saudi-backed policy of pushing oil prices lower to hurt non-OPEC producers.

Benchmark Brent, near US$37 (RM158) per barrel, traded just US$1 away from those lows reached last week as the primary supportive factor – an expected cold snap in Europe and the United States – was forecast to be short-lived.

“The oil prices in the next year (2016) will fluctuate between $35 to $50, so Iran is not anxious about a fall of its oil income”, Mehdi Asali said, Reuters reported.

Analysts expect this price structure to stay in place, especially should global markets suffer from slowing demand and ongoing high supplies while the United States tightens.

West Texas Intermediate (New York Mercantile Exchange: @CL.1) futures on Wednesday fell to $36.60 per barrel, down 3.4 percent. It fell $1.29, or 3.4 percent, to close at $36.81 per barrel on Monday. Slowing demand growth, particularly in Asia, has also weighed on prices. That would still leave supplies more than 120 million barrels above the five-year seasonal average.

Crude oil futures came under renewed pressure early on Tuesday as fears of slowing demand added to near-record global production levels, which have already slashed prices by two-thirds since the middle of previous year. Prices rebounded despite Saudi Arabia’s planned cuts to 2016 spending that are based on a Brent price next year of $37 a barrel, according to John Sfakianakis, a Riyadh-based economist at Ashmore Group Plc and a former government adviser. Stores of crude usually decline in the other seasons when refineries boost the amount of oil they consume.

U.S. oil production is expected to remain above 9.1 million barrels per day, which would bring little respite to the crude oversupply that has kept prices down for more than a year, analysts said.

The U.S. inventory report also showed an increase of 1.8 million barrels in distillates, including diesel fuel, and 900,000 barrels of gasoline. The downturn accelerated at the end of 2014 after a Saudi-led OPEC decision to keep production high to defend global market share rather than cut output to support prices. Mehdi Assali, the director of affairs Organization of Petroleum Exporting Country affairs at the Iranian Oil Ministry, said that, with production costs of around $10 per barrel, Iran stands in a unique position.